What are the VAT consequences associated with an auction house?

Q: A client of
mine bought a shelf company in the current year. This company is going to be an
auction house, where person A can come and make use of the company to auction an
animal to person B. The ownership of the animal directly gets transferred from
person A to person B. My client acts in the middle. Where person B transfers
the money for the animal, to my client, then my client transfers the money
received less the commission charge over to person A. My client will register
for VAT as soon as the turnover above R50 000 can be proved. Does my client
need to charge VAT on the price of the animal? Is the price of the animal
itself part of turnover/income? According to my knowledge, my client should
charge VAT on the commission fee only, once registered. Does my client need to
get every person who sells an animal, to sign a VAT form for sale of second
hand goods, and which will be the correct form that must be signed?

A: As a standard
principle auctioneers are agents as far as VAT is concerned per s54(1) VAT Act
in respect of the goods sold on behalf of others. The agent may issue the
invoice in respect of the supply as agent but the principal will have to
account for the VAT output. The auctioneer must then also retain the
documentation as required in s54(3) VAT Act in respect of the principal. The
auctioneer as agent will only have to account for VAT on his or her sales
commission earned and not the value of the horse sold between A and B.

However section 54(5) VAT Act also provides a special
dispensation that when the principal and the auctioneer agree to have a supply
by auction of any goods, other than a taxable supply, treated as if the supply
were made by the auctioneer and not by the principal, the supply will be
charged with tax as if it were made by the auctioneer in the course or
furtherance of the auctioneer’s enterprise. The auctioneer may then recover the
amount of tax charged on the supply from the principal or retain or deduct the
relevant amount out of any money in the auctioneer’s hands belonging or payable
to the principal.

The auctioneer must in both instances maintain the records
contemplated in s 20(8) VAT Act as if the principal made a supply of
second-hand goods to him or her, not being a taxable supply. The auctioneer
will then have to account for VAT output tax on the sale of the goods, even
though you would not have had to account for vat on the supply had you sold the
goods without the intervention of the auctioneer. Where the auctioneers
purchases goods for sale, such goods will be treated as normal as if the
auctioneer was trading in such goods and he would have to account for the
output tax on such sales.

Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.